China weighs slowing or halting purchases of USA treasuries

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Pimco, one of the world's biggest money managers, sees this week's USA bond market selloff as a buying opportunity and is not ready to call the spike in 10-year Treasury yield to a nine-month high a bear market precursor.

Investors worry that if China purchases fewer Treasuries, the US government will have to find alternative buyers. A spokesperson for the State Administration of Foreign Exchange (SAFE) said in a statement published on its Chinese website, that the "news may quote the wrong source of information, or it may be fake news".

China owns nearly $1.2 trillion of USA government debt, more than double the level from a decade ago, with most of the buildup coming as the nation boosted foreign-exchange reserves to help offset a strengthening yuan.

Market sentiment seems tilted toward the dollar's downside, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

Any reduction in Chinese purchases would come just as the USA prepares to boost its supply of debt. "I don't think that's worked out so poorly for the U.S".

The dollar fell against other currencies on Wednesday after a report that China may slow or halt its USA treasury purchases, with the greenback falling more than 1% against the Japanese yen.

Nevertheless, the mere thought that China might choose to unload some of its Treasuries fed broader concerns about how the markets react as central banks in the United States, Japan and Europe normalize policies adopted to prop up faltering economies.

Beijing keeps a big share of its $3.1 trillion in foreign currency reserves in Treasury debt, which is considered safe and easy to trade.

All told, the three central banks are sitting on $14 trillion in securities they have bought since 2009: a $4.4 trillion mix of Treasuries and mortgage securities held by the Federal Reserve; the European Central Bank's $5 trillion in corporate and government bonds; and $4.5 trillion worth of bonds and exchange traded funds accumulated by the Bank of Japan. The session high for the global benchmark was US$69.37, highest since May 2015.

Yields slipped and bond prices clawed back their earlier losses after a solid 30-year bond auction.

For China and its Treasuries holdings, "things are more or less as they always have been", said Seth Carpenter, chief USA economist at UBS Securities LLC in NY and a former Fed and Treasury official.

China wants its own currency, the yuan, pegged to the dollar. The yuan gained around 6.8 percent versus the dollar previous year.

Benchmark bonds reversed earlier gains on the news, with the yield on 10-year Treasuries climbing for a fifth day.

Dollars under pressure Vs JPY after the Bank of Japan (BOJ) moved to trim its long-dated government bond purchases this week, was on track to post its biggest 1-day drop Vs JPY in 7 weeks.

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